Deutsche Post DHL Group (DPDHL) has adapted to the opportunity of e-commerce to deliver impressive profits growth whilst at the same time turning around its other, more troubled operations.
The company as a whole saw revenue fall slightly, down by 3.2% to €57.3bn, but this number was influenced by factors such as falling fuel prices and currency movements. In contrast profits measured in Earnings Before Interest and Tax (EBIT) jumped by 44.8% to €3.5bn, reflecting a strong element of bounce-back from losses last year in certain parts of the corporation.
The engine room of the Bonn-based giant is now the e-commerce focussed businesses of ‘Post-eCommerce-Parcel’(PeP) and Express. These are consistently delivering strong results. PeP saw revenue up by a modest 4.1% in 2016 to €16.8bn, however EBIT leapt by 30% to €1.44bn. This was fuelled by volume increases in e-commerce parcel deliveries with numbers of items handled increasing by 9.3% in Germany. Profit margins hardened from 6.8% in 2015 to 8.6% in 2016.
DHL Express also shone, with an 11.3% improvement in EBIT to €1.5bn despite a more modest increase in revenue of 2.7% to €14bn, depressed by lower fuel surcharges and currency effects. At a profit margin of 11% the business is getting close to matching the margins of its US rivals. Ken Allen, CEO of DHL Express, commented that the highly international and intercontinental nature of DHL Express, combined with its focus on TDI, was the driver of such increasing profitability. He was bullish about the long-term prospects of the division.
Another outstanding performance outlined in these results was that of DHL Supply Chain. For years, this business effectively made no money being so large that it was unmanageable. However, the efforts of its CEO, John Gilbert, to rationalise its client base and its approach to the market appear to have worked. DHL Supply Chain is approaching its target of matching the most profitable of the major contract logistics providers. EBIT was up 27.4% at €572m although revenue fell, influenced by the restructuring of a large healthcare contract in the UK. DHL Supply Chain now delivers a profit margin of 4.1%, which is not only an improvement on previous performance, but is approaching the best performers in the sector who generally see a return on sales of around 5%.
The Global Freight Forwarding and Freight operation may also have begun to emerge from its period in intensive care. DPDHL Group CEO, Frank Appel, has taken direct responsibility for its management and this seems to have worked, with the division lurching back into profit with EBIT hitting €287m for 2016, compared to a loss of €181m in 2015, although admittedly much of this was the result of write-offs. Although the core freight forwarding operation suffered from the market volatility seen elsewhere, with Appel observing that there had been a marked tightening in capacity across the market, and that air freight had been particularly challenging, the noise around the recovery makes it more difficult to estimate the underlying performance of the business. Appel asserted that the company had gained market share in sea freight however air freight was “challenging”. Revenues for the forwarding part of the operation fell by 11% year-on-year although this was hit by currency movements and lower fuel surcharges.
Although recovery has been a big part of these results, the strength of the core e-commerce focus at DHL Express and PeP demonstrates that the corporate strategy of DPDHL is succeeding for the moment. The recovery of DHL Supply Chain and Global Forwarding and Freight also suggests that the wider group is capable of managing other types of businesses. This makes the case for the continued existence of such a large grouping of logistics businesses and casts a favourable light on Frank Appel’s continuing tenure.
Source: Transport Intelligence, March 9, 2017
Author: Thomas Cullen